MINUTES OF THE 218TH MEETING OF THE MONETARY POLICY COMMITTEE
(MPC) HELD ON MONDAY 24TH AND TUESDAY 25TH JANUARY, 2011 IN THE
MPC MEETING ROOM, 11TH FLOOR, CBN, ABUJA

ATTENDANCE
1. Sanusi L. Sanusi

-
Governor, (Chairman)
2.Tunde Lemo


-
Deputy Governor, Member
3. Sarah O. Alade

-
Deputy Governor, Member
4. Suleiman Barau

-
Deputy Governor, Member
5. Kingsley Moghalu

-
Deputy Governor, Member
6. Sam O. Olofin


-
Board Director, Member
7. Adedoyin R. Salami

-
Member
8. Abdul-Ganiyu Garba

-
Member
9. John Oshilaja

-
Member
10. Chibuike U. Uche

-
Member
11. Shehu Yahaya


-
Member,
12. Danladi Kifasi
-
Member, Perm. Sec. Fed.
Ministry of Finance
13. Okorie A. Uchendu

-
Director, MPD, Secretary
14. Christopher M. Okafor
-
Dep. Director, Dep. Sec

OBSERVERS
1. Rasaki A. Sanusi


-
Ag. Stat. General, NBS
2. Sam O. Oni


-
Director, Bank. Supervision
3. Charles N. O. Mordi

-
Director, Research
4. Sani I. Doguwa


-
Director, Statistics
5. Joe Alegieuno


-
Director, Dev. Finance
6. O. F. Owolabi


-
Ag. Director, Fin. Markets
7. Folakemi Fatogbe
-
Ag. Director, Risk Mgt
8. Nathaniel T. Igba
–
Dep. Director, Trade & Exch
9. Festus C. Agu
-
Dep. Director, Reserve Mgt.

Day 1:
Opening
1.) The meeting commenced at 10.02 a. m. with a
prayer by Abdul Ganiyu-Garba. In his opening remarks,
the Chairman welcomed members to the first meeting of
the year and informed them of the intention to
publish the names and attendance of members in this
year’s Annual Report and Statement of Accounts of the
Central Bank of Nigeria (CBN). He also announced that
the press conference would hold at 2.30 p.m. instead
of the usual time of 3.00 p.m. To that effect, the
Deputy Governor, Economic Policy (DG (EP) suggested
that the following day’s meeting should commence at
9.00 a.m. to facilitate an early production of the
communiqué.
Minutes of the Previous Meeting
2.) In reviewing the minutes of the 217th meeting of
the MPC held during November 22 - 23, 2010, members
felt that the entire section on matters arising
should be re-written to reflect the actual concerns
expressed
by
members.
The
following
specific
observations were also made:
: last line, “attended” should be replaced
with “attend”.
: line 3 from bottom should read “credit
classified as sub-standard” instead of “standard”.
:
line

from
bottom
should
read,

“Application for Guarantee Certificate to the tune of
N107.5 million, made up of N100.0 million to First
Bank of Nigeria and N7.5 million to the National
Economic Reconstruction Fund (NERFUND) had been
approved under the SME Credit Guarantee Scheme, as at
end-November, 2010”.
: The Chairman observed that in an attempt to
be precise, the minutes were robbed of the robust
discussions held during the meeting. It was also
pointed out that the decision reached was a “majority
decision” and not a “unanimous decision” as reported.

Matters Arising from the Minutes of the Last Meeting
3.)
The
Chairman
pointed
out
that
the
Asset
Management
Corporation
of
Nigeria
(AMCON)
had
actually purchased some of the banks’ toxic assets,
and that about N770 billion worth of bonds had been
issued in respect of the non-performing loans (NPLs).
He, however, cautioned that as more money go into the
recapitalization of banks, liquidity pressures might
arise in the banking system.
A member noted that the structure of the minutes was
such that a greater proportion of it was devoted to
the banking system presentation, which was unusual
for minutes of a Monetary Policy Committee. Such
minutes, he said, should focus more on monetary

policy issues. It was also observed that substantial
portions of the background paper presentations at the
MPC found their way into the minutes, whereas a
summary of their relevant sections would suffice. In
essence, the minutes were expected to focus more on
capturing the discussions of the presentations and
the underlying arguments, rather than the details of
the papers presented.
A member observed that the minutes of the 216th MPC
meeting had been posted on the Bank’s website in line
with the decision reached at that meeting. Members
welcomed the development and the Chairman directed
that the approved minutes should be posted on the
Bank’s website within two weeks of each MPC meeting,
after it had been vetted by the DG (EP) and two
volunteers that are not members of the Committee of
Governors (COG). In that regard, the DG (EP)
suggested that instead of having a committee of
three, the minutes should be sent to members and
their comments returned promptly. The Chairman then
concluded that members must take responsibility for
going through the minutes. The whole idea of posting
the minutes on the website was to make for openness
and provide the public with more information on how
the major decisions reached at the MPC were arrived
at. In the same vein, the Chairman stated that the

minutes should contain a short note of about one
paragraph from every member, supporting his or her
vote during the MPC meeting. The MPC secretariat was
mandated to collate the notes.
Presentation by the Monetary Policy Department:
4.0 Economic Report and Proposals for Monetary Policy
Actions
The Economic Report covered developments in both the
domestic and international economies, and outlook for
the near-term.

Domestic Economic Developments
On
the
domestic
economy,
the
focus
was
on
developments in output, prices, fiscal, external
sector and financial markets.

The presentation indicated the following output and
price developments:
i)
Projections
by
the
National
Bureau
of
Statistics indicated that real Gross Domestic
Product (GDP) grew by 7.85 per cent in 2010
compared with the revised figure of 6.69 per cent
in 2009.

ii) The non-oil sector was projected to grow by
8.92 per cent in 2010 compared to 8.61 per cent
in 2009, largely driven by the agriculture,
wholesale/retail trade and services sectors with
relative contributions of 2.39, 2.04 and 2.08 per
cent, respectively.

The oil sector was projected to positively
contribute 0.05 percentage point in the third
quarter and 0.04 percentage point in the fourth
quarter of 2010

iii)
The
year-on-year
headline
inflation
decreased to 11.8 per cent in December, 2010 from
12.8 per cent in November 2010, and 13.6 per cent
in September, 2010. Of the December inflation
rate, food inflation contributed 6.46 per cent.

Similarly, core inflation declined to 10.9 per
cent in December, 2010 from 11.7 per cent in
November, 2010. Food inflation also dropped to
12.7 per cent in December, 2010 from 14.4 per
cent in November, 2010.

In terms of financial market developments, the report
indicated that:
iv) At the inter-bank market, the call and OBB
rates rose to averages of 8.45 and 7.43 per cent,
respectively, in October 2010, in response to the
upward review of the MPR and IT challenges
experienced in September, 2010. The rates, however,
moderated to 8.06 and 6.86 per cent in December
2010, while MPR remained at 6.25 per cent.
v) The average maximum lending rate decline from
22.20 in September, 2010 to 21.84 per cent in
November 2010. The average prime lending rate also
fell from 16.66 in September to 16.11 per cent
November, 2010.

vi) The weighted average savings rate declined
consistently from 3.2 and 1.95 per cent in March
and June, 2010 to 1.49 and 1.48 per cent in
September and November, 2010, respectively. The
consolidated deposit rate which declined from 2.09
per cent in June to 2.07 per cent in September rose
to 2.36 per cent in November, 2010.

Thus, the spread between the average maximum
lending rate and the consolidated deposit rate
widened from 19.94 per cent in June to 20.14 per
cent September, before narrowing to 19.48 per cent
in November, 2010.

vii) At the foreign exchange market, total demand
and sales in 2010 amounted to US$29,785.70 million
and US$25,167.81 million, respectively, which were
equivalent to an average of US$307.10 million and
US$259.46 million per auction, respectively. This
compared with the total demand and sales of
US$35,471.13
million
and
US$24,204.80
million
recorded in 2009. The sales/ demand ratio per
auction rose from 80.4 per cent in September to
91.0 per cent and December, 2010. On the average,
84.11 per cent of foreign exchange demand was met
in 2010.
In December, 2010, the wDAS exchange rate recorded
a depreciation of N0.26 or 0.17 per cent compared
to the preceding month. In the BDC segment, the
market recorded a depreciation of N1.44 or 0.94 per
cent. Similarly, at the inter-bank market, the
average selling rates in December, 2010 indicated a
depreciation of 0.22 per cent from that recorded in
November, 2010.

viii) The country’s gross external reserves stood at
US$32.34 billion at end-December 2010, indicating a
decline of US$2.16 billion or 6.3 per cent compared
with US$34.50 billion at the end of September 2010.
The reserve level fell by US$11.04 billion or 25.45
per cent when compared with US$43.38 billion as at
end-December, 2009. However, as at January 20, 2011,
the external reserves stood at US$33.26 billion,
representing an increase of US$0.92 billion or 2.84
per cent when compared with end-December level.

The
report
also
indicated
that,
total
foreign
exchange inflows from January to December, 2010 was
US$27,877.04 million, representing an increase of
US$2840.77 million or 11.35 per cent over the
$25,036.27 million recorded in the corresponding
period of 2009. Of this inflow, crude oil/gas revenue
was US$26,166.69 million or 93.86 per cent. Total

outflows for the same period amounted to US$37,923.57
million.
The CBN funding of the foreign exchange market
accounted for US$24, 836.27 million or 65.49 per cent
of the outflows.

Thus,
there
was
a
net
outflow
amounting
to
US$10,046.53 million in 2010 compared with $10,484.83
recorded in the corresponding period of 2009
ix) On the fiscal side, total federally-collected
revenue for the period January – November 2010 stood
at N5,725.76 billion, of which oil revenue accounted
for N4,857.40 billion or 84.83 per cent. The amount
collected was lower by N772.62 billion or 11.89 per
cent relative to the proportionate budget estimate of
N6, 498.38 billion.

The
overall
fiscal
operations
of
the
Federal
Government for the period (January to November, 2010)
resulted in a deficit of N1, 529.33 billion.

The deficit was financed through DMO borrowing from
the domestic market (N893.79 billion), FGN Share of
Excess Crude Account (N199.54 billion), Privatisation
Proceeds (N6.36 billion), World Bank Loan (N75.03
billion) and Loans from Special Accounts (N337.56
billion)

x) The monetary analysis indicated that broad money
supply (M2) increased by 6.7 per cent in December,
2010 (on an annualized basis) compared with the
indicative benchmark of 29.26 per cent for 2010. Net
aggregate credit to the economy grew by 13.4 per
cent, on an annualized basis, in December, 2010,
compared to 59.6 per cent recorded in December, 2009.
This was driven mainly by the substantial credit to
the Government which grew by 67.83 per cent, while
credit to the private sector fell by 4.92 per cent
(annualized)
in
December

as
against
the
benchmark of 31.54 per cent for 2010.

Reserve
Money
continued
to
remain
below
the
indicative benchmark in most periods of 2010. As at
January 10, 2011, the RM stood at N1, 535.67 billion
below the 2011 Q1 provisional indicative benchmark of
N1,784.94 billion by N249.27 billion or 13.97 per
cent
xi) Demand for the Standing Lending Facility (SLF)
decreased from N1,356.16 billion in November to
N859.61 billion in December, 2010. However, patronage
of the Standing Deposit Facility (SDF) rose from
N443.71 billion in November to N1,099.28 billion in
December, 2010.

xii) Nigerian capital market indicators recorded
significant improvements during the year 2010. The
All Share Index (ASI) increased by 18.93 per cent
from 20,827.17 as at end-December, 2009 to 24,770.52
at
end-
December,
2010.
Similarly,
market
capitalisation increased by an annualized growth of
58.83 per cent from N4.98 trillion as at endDecember, 2009 to N7.91 trillion at end-December,
2010.

Developments in the Global Economy:
xiii) The report noted that the performance of the
global economy was mixed. In general, there were
continuing signs of global economic recovery as more
countries reported signs of rising output, moderating
inflation,
improving
stock
market
indices
and
moderating exchange rate depreciation.

Monetary policy rates in most countries across the
world were reduced or kept low during 2010, in an
attempt to enhance liquidity to sustain recovery and
growth.
Monetary
policy
innovations
using
quantitative easing were also adopted to pull some
economies out of recession.

Despite these developments, the report emphasized the

need to monitor developments in the Euro area
economies, particularly the PIGS - Portugal, Italy,
Greece, and Spain because of the potential adverse
impact of recent developments in these economies.
Other developments included: political upheavals in
North Africa, especially in Tunisia and Algeria;
flooding in Australia, Bangladesh and Sri Lanka with
implications for food prices and security; and
election stalemate in Ivory Coast with its possible
adverse effects on the economies in the West African
sub-region.

Outlook for the Near-term
In terms of near-term outlook, the report indicated
that real GDP growth in 2011 could be higher than in
the
preceding
year
based
on
the
following
assumptions:
◦ Resolution of the Niger Delta crisis and
government’s
amnesty
programme
for
militants;
◦ Improved oil prices and output;
◦ Prospects of high agricultural output;
◦ Impact of banking sector reforms and the
intervention funds;
◦ Stability in the supply and prices of
petroleum products; and
◦ Expected improvement in electricity supply.
With regard to prices, staff projections indicated
that
the
year-on-year
headline
inflation
would
fluctuate between 11.1 and 12.3 percent in the next
six months.

xiv) Similarly, money market rates were not likely
to
moderate
in
the
light
of
government
borrowing.

Staff forecasts indicate that if the current exchange
rate policy stance of liberalizing the foreign

exchange market, with a view to enhancing foreign
exchange supply was sustained, the exchange rate
would likely remain stable in the near-term.

Federal
Government
expenditure
was
expected
to
increase in the first quarter of 2011 due to election
expenses and concurrent implementation of 2010 and
2011 budgets.

Forward prices of oil posted on the New York
Mercantile Exchange suggested that crude oil prices
would rise during the rest of the year and beyond.

xv) A summary of the business expectations survey
conducted by Brickfield Road Associates (BRA)
Limited indicated that:
• All the sectors surveyed expected an improvement
in the economy.
• Employment was expected to rise but manufacturing
sector was anticipated to remain unchanged
Inflation was generally expected to rise in the
next three months
Interest rate was generally expected to rise in
the next three months
Appreciation in the naira exchange rate was
expected in the next three months. However, some
sectors expected some level of depreciation in
the next six months.
Input Cost was expected to rise
Most sectors expected output to rise
MPR was expected to remain unchanged for the next
three months. However, it was expected to be
increased in the next six months

xvi) Based on the review of economic developments
and outlook for the near term, the report
identified the following pressure points and
policy challenges:

Pressure Points:
Persisting fluctuations in the interbank call and
OBB rates
Tight credit conditions and high lending rates
Expected high government expenditure in the first
quarter of 2011
Depreciating naira exchange rate in the face of
declining stock of external reserves

Challenges for monetary and credit policy in the
next two quarters included:

providing adequate liquidity and easing credit
conditions in the market;
locking-in on lowering inflation expectation;
Domestic financing of Federal Government fiscal
deficit; and
Moderating the declining stock of external
reserves.

Thus, the key thrust of Monetary Policy in 2011 were
identified as:
- Focus on maintenance of price stability;
- Sustenance of monetary tightening to address the
emerging signs of inflationary threat;
- Maintaining market-driven interest rates
- Achieving stable naira exchange rate
- Sustenance of output growth
- Ensuring a safe, sound and stable banking system

Proposals for Monetary Policy Actions
In view of the foregoing, the following policy
proposals were presented for the consideration of the
MPC:

Scenario 1:

• The MPC may retain the MPR at 6.25 per cent and
the current interest rate corridor
Pros:
• Maintaining the current monetary policy stance
would sustain market expectations at the current
level with respect to inflation, interest and
exchange rates.
• There would be no interruption of the current
policy measures which would facilitate the
achievement of their objectives.
Cons:
• It might signal non-recognition of inflation
threats
arising
from
anticipated
liquidity
injections
from
election
expenses,
CBN
quantitative
easing
policy
and
government
expenditure,
especially
the
concurrent
implementation of 2010 and 2011 budgets in the
first quarter of 2011.

Scenario 2.

(a) The MPR should be raised by 25 basis points to
6.50 per cent and the current interest rate
corridor be retained;
(b) Raise the liquidity ratio from 25.0 per cent to
30.0 per cent effective March 1, 2011;
(c) Increase the cash reserve ratio from 1.0 per
cent to 2.0 per cent effective January 31, 2011.
A selection of (a) to (c) or a combination of any
of the three may be considered

Pros:
• This would signal monetary policy tightening in
response
to
the
prospects
of
inflationary
pressures from anticipated liquidity injections
from CBN quantitative easing, election expenses,
AMCON and Government injections.
Cons:
• Raising MPR, CRR and Liquidity ratio could

further increase lending interest rates and slow
down the current policy efforts at channelling
credit to the real economy.


Scenario 3.

• The MPR should be reduced by 25 basis points with
the current interest rate corridor retained.
Pros:
• This would signal monetary policy easing in order
to further spur economic growth and employment
generation
Cons:
• Lowering MPR could risk the current moderation in
the downward inflationary trend.

Discussion of the Report
In discussing the report members felt that the
outlook for 2011 presented in the report was too
optimistic. It was noted that there was likely to be
increased spending in the run up to the elections in
April 2011, so the risk of inflation would be on the
upward side. Other factors that might cause
inflation to trend upward were, increasing global
food and energy prices, as well as spending by AMCON.
Concerning the capital market, the sentiment was
that it was in a recovery mood. Going by recent
criticisms, a member wondered if the Bank had not
abandoned
its
inflation
objective
given
the
consistent focus on financial stability. The Chairman

drew the attention of members to the Banks’ reform
document which clearly stated that the Bank would
pursue
a
hybrid
monetary
policy
that
targets
inflation and financial stability.
On the depletion of the external reserves, members
felt that the structural problem of our economy as an
import- dependent country was partly responsible for
the depletion of the reserves. The depletion of the
reserves should be explained in terms of how much was
spent on JVC cash calls, subsidies on petroleum
products and funding of the WDAS, among others. The
public needed to be informed that if we did not
expend the reserves, we probably would have had to
borrow. Also, the point should be made that we
perhaps would not have had inflation moderating if we
had not expended the reserves to stabilize the
exchange rate. However, it was emphasized that the
expenditure on JVC cash calls needed to be made
transparent. In that regard, the Extractive Industry
Transparency Initiative needed to be revived. It was
restated that the depletion of reserves could only be
substantially
addressed
by
attending
to
the
fundamental structural problems of the economy. It
was presumed inconsistent to preserve reserves simply
as an end by itself, in a highly import-dependent
economy. It would imply deliberately starving the

economy of essential imports where there are no
import competing substitutes. Specifically, whenever
we are able to get the refineries working again, and
import of petroleum products considerably reduced,
and whenever we are able to boost the production of
our import-competing goods, especially food items
such as rice, and significantly reducing their
imports, we would be back in a strong position that
enhances our capacity to conserve and build our
foreign reserves. However, given the expectation
for improved oil output and prices, the MPC was
looking forward to the rebuilding of the external
reserves and excess crude account that were depleted
in 2010.
Members welcomed the trend whereby inflation was seen
to be declining, but wanted to know the major drivers
of the decline.
On savings, members expressed concern about the low
savings rate which had declined to about 1.0 per
cent. From an economic perspective, and for financial
inclusion, it was important to consider small savers
by
rewarding
them
reasonably
and
fairly. They
emphasized that if that was not addressed, the banks
would face the problem of disintermediation when the
CBN
guarantee
of
interbank
transactions
was
eventually removed. There was, therefore, the need

to set a minimum savings deposit rate, as was the
practice in most developing countries. Accordingly,
the Committee mandated Dr. Vasudevan Asuri and BSD to
conduct a research on minimum savings/deposit rates
across countries, as a basis for drawing up policy
guidelines on the issue.
On capital market analysis, the Committee suggested
the
need
to
determine
the
peaks
of
market
capitalization of the Nigerian Stock Exchange (NSE)
in 2007/ 2008 and to see how the market had recovered
in 2010 when viewed against the peak. The Committee,
however, noted the general reduction in the share of
the banking sector in the capital market from about
70 per cent during its peak to about 36 per cent.
The MPC also sought to know how much foreign exchange
was sold by CBN to Class “A” BDCs in 2010.
Notwithstanding
the
economic
developments
cited
above, it was pointed out that there were heightened
political risks associated with the build up to the
elections and the need to pay attention to security,
especially in the volatile regions. It was emphasized
that part of the political risk was the failure of
policies to provide jobs to stem unemployment. After
an exhaustive deliberation of the economic report the
Committee agreed that the policy thrust would be to

sustain monetary tightening in 2011.
At the end of the discussions, the Chairman provided
the summary of the key issues, to enable members have
a clear direction in preparation for the decisions
during the next meeting day. The summary was as
follows:

(i)
Although inflation had moderated for two
consecutive months, its outlook, however,
pointed to an upward risk because of
inflation pass through to the domestic
economy, since the country imports petroleum
products. There were also increased expenses
associated
with
AMCON,
and
election
spending, all of which would put upward
pressure on inflation.
(ii)
He observed that foreign reserves were
beginning to show signs of stabilization.
(iii)
He re-emphasized the Committee’s commitment
to price stability, and in 2011, hoped to
see progress on various reform measures that
should attract foreign investment and help
in moderating the structural problems of the
economy. The government was commended for
its
efforts
at
reducing
overhead

expenditure.
(iv)
He
further
observed
that
the
recovery
noticed
in
the
capital
market
was
progressing satisfactorily.
(v) The greatest challenge facing the economy he
identified was the lack of flow of funds into
critical sectors, a development which called for the
need to unlock the flow of credit into critical
investments in agriculture, SMEs and manufacturing
sectors.
(vi) On the government side, there was the need to
enunciate the right policies, as well as create the
regulatory and institutional environment, including
continued fight against corruption and provision of
adequate infrastructure.
(vii) On the Bank’s side, the CBN would continue to
engage the banks in reforms/intervention to channel
credit to the critical sectors.
After the summary, the MPC through Prof. Sam Olofin
congratulated the Governor for being conferred with
the Man-of- the Year award by the Nigerian Tribune
Newspapers, among other awards. The Chairman thanked
members for the support and restated that he
dedicated the awards to the hardworking staff of the
Bank as well as other stakeholders including the

Presidency, National Assembly, the Police and
EFCC,
who made whatever achievement that was recognized,
possible.
CLOSING: The meeting rose at 5.59 pm with a prayer
by Dr. Sanni Doguwa.
DAY 2, 25th January, 2011
The meeting commenced with a prayer by Tunde Lemo,
Deputy Governor, Operations.
The Chairman did a recap of issues discussed at the
previous day’s meeting stressing that the easing mode
in monetary policy action had been exited. He,
however, remarked that the challenge facing the
Committee was to decide on whether to maintain the
status quo as at the last MPC or further tighten
monetary policy, and if so, the instruments to be
used. He argued that inflation had been trending
downward since November, 2010 and that could be one
of the arguments for not doing anything. However, he
remarked that with the deregulation of the power
sector and rise in crude oil prices, with possible
reduction in subsidy or increase in government
borrowing/spending,
there
was
bound
to
be
inflationary threats and erosion of reserves. Again,
from two months thence, AMCON was expected to have
recapitalised
all
banks
and
that
would
have
implications for system liquidity. The Chairman

further observed
that Nigeria lost about US$10.0
billion in reserves in 2009 and 2010, respectively
and that if the trend persisted in 2011, the country
will either lose its reserves or face exchange rate
depreciation, which was counter to the policy stance
of exchange rate stability. More importantly, he
noted that the continued demand for foreign exchange
(and
consequent
depletion
of
reserves)
was
a
reflection of the import-dependent nature of our
economy. There was, however, the need to sustain the
observed increase in external reserves. The above
arguments, did not suggest the need for a more
accommodating monetary policy stance. Rather, the
policy choice was clearly whether to continue with
the last MPC position or tighten monetary policy.
Having provided a synopsis of the policy choices and
the arguments for and against each option, the next
decision was on the instruments that would be
employed. A combination of the Monetary Policy Rate
(MPR), Cash Reserve Requirement (CRR) and Liquidity
Ratio (LR) were suggested. Nevertheless, it was
acknowledged that the effectiveness of the above
measures could be limited by the existing structural
problems in the economy.

Individual Positions and Arguments for the Policy
Choices

Having analyzed
the issues,
the Chairman invited
members in turn to make their policy choices and
justifications known.

John Oshilaja:
He agreed with the Chairman’s position that monetary
easing was no option. He, however, argued that the
issue of whether the MPC continued with monetary
tightening was a more difficult one as we have not
seen the inflation drivers working. He, therefore,
supported the maintenance of the previous position.
Adedoyin R. Salami:
He observed that the stance of the MPC at its
previous meeting was to leave MPR unchanged and watch
the outcome of events. Although he noted that there
were some issues around the instruments to be used
and
also
doubted
whether
low
inflation
was
sustainable, he expressed the need for caution and,
therefore, supported the maintenance of the previous
position.
Chibuike U. Uche
He held the position that the status quo should be
maintained as we were in the middle of a banking
reform and would want banking stability. He further
stressed that a major objective of monetary policy
was to promote real sector growth and that inflation
was only anticipated, while available statistics

showed that it had not happened, but was actually
trending down. He noted that a positive development
as contained in the Chairman’s statement was that the
President himself was leading the campaign for
prudent
spending
and
economic
management.
He,
therefore, did not think that the benefits of taking
a proactive action would outweigh the costs, hence he
supported that the status quo be maintained.

Shehu Yahaya:
In contrast to the previous speakers he argued for
monetary tightening. The argument was predicated on
the tangible prospects for higher fuel prices,
increased spending due to the impending elections,
and additional injection of liquidity from AMCON
activities. These factors may provoke inflationary
pressures and Naira depreciation, which in turn may
stroke further inflation and deplete the reserves.
Tunde Lemo:
Tunde Lemo argued that the Committee could ill-afford
to ignore the increased spending that would arise as
a result of the fact that we are in an election year.
The negative real interest rate and the risk of
financial disintermediation as a result of higher
inflation were worrisome, if interest rate was not
adjusted upward. He, therefore, favoured monetary
tightening.

Sarah Alade:
In her submissions, she argued that the declining
inflation was not sustainable and that we were losing
reserves fast. If monetary policy was not tightened,
then pressure from that window would make us to
continue to lose reserves and that would have serious
implications for the economy. She went further to
argue that although there was no information on
inflation expectation, the threat of higher inflation
was real and would be exacerbated with election
spending.
She,
therefore,
supported
monetary
tightening.
Kingsley Moghalu:
Kingsley Moghalu argued that although inflation was
slightly reduced, it was not sustainable and that the
reasons already adduced for the need to shore up
reserves were quite compelling. He warned that if the
Committee did not agree to tighten monetary policy
then, it might be too late by the next MPC that would
hold in March, 2011. He, therefore, favoured monetary
tightening.
Suleiman Barau:
He supported the tightening of monetary policy and
observed that it was consistent with the Committee’s
position during the last MPC meeting. He saw no
reasons for a change to that position as the
compelling reasons included the need to ensure

stability in the foreign exchange market and tame the
upsurge in liquidity.
Sam O. Olofin:
He argued that given the anticipated liquidity
upsurge and de-accumulation of foreign reserves, as
well as information available from other indicators,
the Committee should have started the process of
tightening much earlier. He emphasised that the MPC
should not allow the emergence of spikes but rather a
smooth adjustment process in their monetary policy
actions. He noted that it was better for the MPC to
have incremental measures and also pay attention to
impact
lag
of
monetary
policy. He,
therefore,
favoured monetary policy tightening.
Abdul-Ganiyu Garba:
Having listened to previous arguments, he remarked
that majority of members seemed to support the policy
on monetary tightening which was the decision taken
at the last MPC meeting in November but the argument
remained which instruments to apply. However, he
suggested that in subsequent meetings, the Committee
should spend more time observing the behaviour of the
high frequency data, pre and post MPC meetings. Such
observations and analysis would help the Committee
determine
what
happened
before
and
after
the
decisions at the MPC meetings. He observed that even
though inflation appeared to be trending down, he was

concerned about the dwindling reserves. He
further
observed that the biggest threat to inflation was the
value of the naira and that if the naira depreciated
there would be mark up in prices. He, therefore,
voted for tightening, which was consistent with the
position at the last MPC, but remarked that the
choice of instruments was key to the outcome of the
decisions.
Danladi Kifasi:
Danladi Kifasi remarked that having listened to the
brilliant arguments of the earlier speakers, he was
inclined to align himself with the majority opinion.
However, he was worried about the possible impact of
monetary tightening on the treasury. He argued that
if the Committee strengthened the naira so much, then
the government would have problem with its revenue
when they monetize the dollar proceeds, and that
would affect government projects. Thereafter, he
voted for monetary policy tightening.

Sanusi Lamido Sanusi:
In his submissions, the Chairman stressed that the
greatest threat to inflation was the anticipated
liquidity pressure and that a lot of what was done
and achieved by the MPC relied on credibility of the
authorities. He argued that if the Bank had made a
commitment to exchange rate stability, there was a

cost in moving away from that position. Consequently,
if the Committee felt that the observed inflation
level was not sustainable, then they must find an
intelligent way to adjust. He emphasised that it was
difficult to justify exchange rate depreciation where
prices were high and the country was an importdependent economy. The only argument for it was that
government wants more money. Since part of the
objectives of monetary policy was exchange rate
stability, it was better to prevent the depreciation
of the naira, rather than give government more money
and for it to have less to spend in real terms. He
went further to argue that the demand for foreign
exchange was actually driven by banking system
liquidity and that the only way to keep the naira
exchange rate within an acceptable band, with the
influx of liquidity anticipated from AMCON, election
and all that, was to tighten monetary policy.
He also observed that the uncertainty surrounding the
elections was a big issue as foreign investors were
waiting to see what would happen after elections,
while the local investors were thinking of where to
take their money to if problems emerge as a result of
the outcome of the elections. He, therefore, asserted
that the immediate reasons for monetary policy
tightening were to preserve the external reserves
level and ensure exchange rate stability. He pointed

to clear indications that a moderation in inflation
was almost an aberration. Continuing, he alluded to
the global increase in energy and food prices and
Nigeria’s vulnerability as an import dependent nation
that also imported oil. He argued that if oil prices
went up, that would translate to more subsidies to
the Nigerian National Petroleum Corporation (NNPC)
for imported petroleum products. He reminded members
that he voted for a hold on monetary policy action at
the last MPC meeting, but observed that the situation
was quite different, given an inflation rate of 11.8
per cent in December, 2010. He observed that the MPC
did quantitative easing to save our ailing economy
and that the justification for further monetary
accommodation gets weaker, even as the capital market
was recovering and oil prices were rising. He,
therefore, voted for monetary policy tightening.
At that juncture, he enquired to know whether any of
the members that were not formally in favour of
tightening had changed their minds after listening to
the arguments. Based on that, the following discourse
ensued.
John Oshilaja:
John Oshilaja remarked that he generally supported
tightening, but his problem was whether the timing
was right. His other concern was for the flexibility
the Committee might lack in the future, if it used up

all the instruments at its disposal then.
Sanusi Lamido Sanusi:
The Chairman reminded him that the MPC had actually
moved MPR up by 25 basis points in 18 months. He,
therefore, remarked that an MPR of 6.25 per cent was
actually very far from the pre-crisis position. He
also said that the CBN had been very active in the
Open Market Operations (OMO) and would prefer the
Bank relied more on that.
John Oshilaja:
Having accepted the above arguments, he changed his
vote in favour of tightening, but proposed that the
action should take the form of a gentle process.

Adedoyin R. Salami:
Having listened to various shades of arguments and
made the point about negative interest rate, he
agreed on balance to monetary tightening as the
movements in MPR and inflation rate were both
critical for inflation management. He was further
compelled to change his mind as he was not convinced
that the fiscal authorities would exercise restraint
in spending as we moved closer to the elections.
Sanusi Lamido Sanusi:
In response, the Chairman drew his attention to the
outcome of the fiscal analysis which showed that
recurrent expenditure constituted over 70.0 per cent

of 2010 budget expenditure. He observed that that was
a sure signal for inflation. Furthermore, the fiscal
authorities had always out-performed the target for
recurrent expenditure which was also expected to hit
the market faster.
Danladi Kifasi:
He acknowledged the point made by the Chairman but
remarked that a lot of the recurrent expenditure had
gone to maintenance and payment of salaries. Although
he
agreed
to
tightening,
he
still
had
his
reservations
as
government
was
bound
to
be
constrained by that decision.
Sam O. Olofin:
In his contributions, he opined that the views of MPC
members were not in any way contradictory as they
were meant to complement fiscal measures. He argued
that if government received a larger quantity of
naira and bought less with it that would have
amounted to money illusion. He, therefore, concluded
that a weaker naira was not even in the best interest
of fiscal authorities.
Danladi Kifasi:
In his final submission, he ended rhetorically by
posing the question, how do we then ensure that Banks
lend to the private sector?
Chibuike U. Uche:
Chibuike Uche maintained his position in favour of

the status quo, arguing that exchange rate stability
was not sustainable in the long-run. He observed that
if monetary policy was tightened at that point,
interest rate would go up and was, therefore not
convinced the MPC should tighten monetary policy
stance at that stage when inflation was coming down.

Sanusi Lamido Sanusi:
Reacting to the issues raised, the Chairman observed
that he was very passionate about the real sector but
that the long-term solution lay in structural reforms
in the economy. He stated that monetary policy had
its limitations in terms of the control of credit to
the real economy. The critical issue was that of
access to credit as lenders tend to gravitate to big
borrowers. That, he said, was really the challenge.
He stated that addressing the flow of credit to the
real sector required extra action outside of monetary
policy. He directed that the communiqué should stress
those points made, if we want to address the problem
of attrition of reserves.
The Chairman remarked that cheap money usually led to
bubbles either in the money or foreign exchange
market, and that the bubble was likely to appear in
the foreign exchange market. Having said that, he
announced a vote of 11: 1 in favour of monetary
policy tightening.

Nature
of
Monetary
Policy
tightening
and
the
Instruments to be Used
On the nature of monetary policy tightening and the
instruments to be used, a second round of discussions
and voting by MPC members was conducted to determine
whether the tightening should be gradual, symbolic or
significant in terms of process and magnitude. A
related argument was the nature of instruments to be
deployed. The decisions were guided by the need to
send clear signals to the market that the CBN was
willing and ready to intervene in the market at
anytime it deemed fit. They noted that the most
critical risk was excess liquidity in an environment
of political uncertainty and that those issues posed
challenges to inflation and exchange rate stability.
The issue of timing was seriously considered as time
was of essence in taking monetary policy decisions.
The
instruments
considered
were
the
MPR,
the
Liquidity Ratio (LR) and the Cash Reserve Requirement
(CRR). The LR was found to be above 20 per cent for
most banks while the CRR was considered the most
effective way of dealing with system liquidity
because of its instantaneous effect. Those who had
contrary views were also asked to air them, as some
had lingering concerns about the probability of the
anticipated inflationary pressures manifesting. In

that regard, they did not favour the deployment of a
suit of measures when the magnitudes of their likely
effects were not very clear.


Summary of the Results of the Second Round of Voting
The Chairman summarised the results thus:
By a ratio of 11:1 the MPC members voted to tighten
monetary policy stance, based on reasons already
outlined
above.
The
member
who
voted
against
tightening wanted rates to remain where they were in
view of the fact that inflation was moderating and
also to avoid the risk of elevated lending rate for
borrowers. The Chairman stated that it was time to
begin to return and retrace our footsteps until we
gradually return to normalcy. This implied that the
2009 posture was being gradually unwound as banks
return to normalcy.
He also stated that by a decision of 11:1 members
decided to increase MPR by 25 basis points. However,
by a vote of 7:4:1 members voted to leave the
symmetric corridor around the rate. Four (4) of the
voters wanted the SDF increased by 50 basis points,
while
one
(1)
member
wanted
the
status
quo
maintained.
Again, by a ratio of 11:1, members voted to:
(i)
increase the LR from 25 to 30 per cent with

effect from March 1, 2011; and
(ii)
increase the CRR from 1 per cent to 2 per
cent with effect from February 1, 2011.
The Chairman observed that the measures were
informed by the Committee’s concern on outlook and
uncertainty in the political environment, which was
fuelling insecurity. He reiterated the need to make
the point clear that the economy was affected not
only by monetary and fiscal policies but by other
uncertainties
so
that
those
issues
should
be
addressed as well. The action was seen as a
normalisation process so that by March, 2011, the MPC
would be able to gauge the outcome of its actions.
Summary of Decisions of the Meeting
After deliberations, the Committee voted to:
i) raise MPR by 25 basis points from 6.25 per cent to
6.50 per cent with immediate effect;
ii) maintain the symmetric corridor of +/-200 basis
points, implying a Standing Lending Facility (SLF)
rate of 8.50 per cent and Standing Deposit Facility
(SDF) rate of 4.50 per cent.
iii) raise the Cash Reserve Requirement (CRR) Ratio
by 100 basis points from 1.00 per cent to 2.00 per
cent with effect from February 1, 2011; and
iv) raise the Liquidity Ratio (LR) by 500 basis
points from 25.00 per cent to 30.00 per cent with
effect from March 1, 2011.

v) It was also agreed that subsequent meetings would
devote some time, where relevant, to review the
effects of the policies implemented.

Any Other Business
9) The Chairman in an apparent effort to answer the
question posed by Danladi Kifasi on why banks were
not usually disposed to lending to the real sector,
held some discussions with MPC members on current
efforts being made to de-risk the industry and get
banks to lend to the real economy. This was because,
a bank would only lend if it was satisfied with the
risk criteria. Consequently, the CBN was pursuing
other routes that would help to address bottlenecks
including legal issues. To that effect, he cited the
alternative dispute resolution bill that was trying
to address that problem. He also informed members
that seven value chains in agriculture, namely, rice,
maize, cotton, tomatoes, cassava, cattle and soya
beans have been identified. Moreover, a steering
committee
which
has
the
Ministers
of
Finance,
Agriculture and Commerce as members was being set up
and is to be chaired by him. The committee would
attempt to find ways of unlocking credit to the real
sector. But these are issues that go beyond monetary
policy and require concerted efforts for effective
results. That was why the Chairman viewed the recent

lifting of ban on tooth picks and furniture as a
breach of contract and portends lack of credibility
on the side of government. He remarked that the CBN
saw no urgency in that policy and wondered why the
policy
should
be
reversed without
warning.
He
regretted that as a result of that action, banks now
establish LCs for the importation of furniture from
abroad.
Reacting to the Chairman’s observations, Danladi
Kifasi remarked that those decisions were based on
discussions with relevant stakeholders. He also said
that one of the reasons for lifting the protection
was to replace it with a levy, as it was discovered
that some importers prefer to import through other
ports leading to loss of revenue by government. The
Chairman remarked that some of the consultations took
place after the pronouncements.
In
conclusion,
the
Chairman
observed that
for
effectiveness, monetary and fiscal authorities have
to work together. He stated that the quantitative
easing and low interest rate policies were pursued to
assist
government
when
there
was
no
risk
to
inflation. However, since there was inflationary
risk, the CBN could not do otherwise, unless there
were compelling reasons to do so. Consequently, the
government could either reduce expenditure or find
ways to increase its revenue but not to take recourse

to printing of more money.

Date of Next Meeting
10.) The next meeting was scheduled to hold during
March 21- 22, 2011.

Closing
11.) The meeting ended at 11.45 a.m. with a prayer by
the Chairman, Sanusi Lamido Sanusi, Governor, Central
Bank of Nigeria.


CHAIRMAN
SECRETARY


DATE